Multiple-Event Catastrophe Bond Pricing Based on CIR-Copula-POT Model

Chao, Wen; Zou, Huiwen

doi:10.1155/2018/5068480

Cited by 19 publications

(34 citation statements)

References 13 publications

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“…Furthermore, optimal parametric copula model selection (related goodness-of-fit tests), which affects tail dependence, is another discussion point (see also Weiß 2013). Recent applications in the fixed income market have usually been through developed markets or credit risks (see Kim et al 2020, Yang et al 2020, Chao and Zou 2018, Otani and Imai 2018, Bekiros et al 2018, Benlagha 2014, Chen et al 2014 The other technique, wavelet transformation, also drew attention, in recent years. Especially in stock markets and commodities, the wavelet method has been frequently applied to investigate interdependence and coherence.…”

Section: Introduction and Literature Reviewmentioning

confidence: 99%

Applying multivariate-fractionally integrated volatility analysis on emerging market bond portfolios

Demirel

Ünal

2020

Financ Innov

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This study examines emerging market (EM) local bonds from a portfolio risk perspective and suggests methodologies for risk evaluation, on which the literature is limited. Despite the growth of EM bond funds in recent years, comprehensive studies regarding this industry have been scarce. In light of this, 203 different local bonds of EM countries—Indonesia, Brazil, India, South Africa, Mexico, and Turkey—are elaborated in terms of return, volatility, and cross-correlation features. This study focuses on an untouched field—long memory properties—and the application of fractional models to EM bond portfolios. Based on the outcomes of a dynamic conditional correlation and fractionally integrated generalized autoregressive conditional heteroscedasticity approach and related value at risk analysis, the study finds that fractional models are useful tools for risk management, as they deliver satisfactory empirical results for several static and dynamic versions of EM bond portfolios.

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Section: Introduction and Literature Reviewmentioning

confidence: 99%

Applying multivariate-fractionally integrated volatility analysis on emerging market bond portfolios

Demirel

Ünal

2020

Financ Innov

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“…These proportions are determined by the accumulated exceedance of the trigger indicators x i 's over its attachment levels u i 's. Different from Chao et al 20 , we incorporate a triple of indices (α t , β t , γ t ) into the stressful indicators and the counting process of the disaster {N(t), t ≥ 0}, i.e., an integer-valued, nonnegative, and nondecreasing stochastic process. We will develop a pricing mechanism reflecting both exceeding magnitude of the trigger indicators and its occurrence of the potential disaster below.…”

Section: Cat Bond Pricing Modelmentioning

confidence: 99%

“…The possible range of threshold is detected to be in the interval of (150, 200) according to the sample mean residual plot with a linear trend (see Figure 3 We model the probability distribution of our trigger indicators using the full range of the data, with sufficient flexibility for separate control over bulk and tail features. Different from Chao et al 20 , we consider the Beta-GP models for the scaled non-exceedances and threshold-excesses, namely,…”

Section: Pot-based Tail Analysis Of Trigger Indicatorsmentioning

confidence: 99%

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Pricing Multi-event Triggered Catastrophe Bonds Based on Copula-POT Model

Tang

Ling

Wen

et al. 2023

Preprint

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The constantly expanding losses caused by frequent natural disasters pose many challenges to the traditional catastrophe insurance market. The purpose of this paper is to develop an innovative framework for pricing catastrophic bonds triggered by multiple events with extreme dependence structure. Due to the bond's low cash flow contingencies and the CAT bond's high return, the multiple-event CAT bond may successfully transfer the catastrophe risk to the huge financial markets to meet the diversification of capital allocations for most potential investors. The designed hybrid trigger mechanism helps reduce moral hazard and improve bond attractiveness with CIR stochastic rate, displaying the co-movement of the wiped-off coupon and principal, the magnitude and intensity of the natural disaster events involved. As the trigger indicators resulted from the potential catastrophic disaster might be associated with heavy tailed margins, nested Archimedean copulas are introduced with marginal distributions modeled by POT-GP distribution for excess data and common parametric models for moderate risks. To illustrate our theoretical pricing framework, we conduct a statistical analysis of pricing a three-event rainstorm CAT bond based on the resulted losses of rainstorms in China during 2006--2020. Monte Carlo simulations are carried out to analyse the sensitivity of the rainstorm CAT bond price in trigger attachment levels, maturity date, catastrophe intensity, and numbers of trigger indicators.

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“…Zimbidis et al (2007) determined the extreme distribution of catastrophe losses with the Extreme Value Theory (EVT) Approach, whose interest rates are stochastically determined through the Cox-Ingersoll-Ross Model (CIR). Chao and Zou (2018) determined the extreme distribution of catastrope losses with two trigger events each obtained by the EVT Approach which was then combined with the Copula function. Then, Residori (2019) determined the extreme distribution of catastrophe losses with the EVT Approach through the Block Maxima Method.…”

Section: Introductionmentioning

confidence: 99%

Estimation of the Extreme Distribution Model of Economic Losses Due to Outbreaks Using the POT Method with Newton Raphson Iteration

Ibrahim

Riaman

2021

ijqrm

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Extreme distribution is the distribution of a random variable that focuses on determining the probability of small values in the tail areaof the distribution. This distribution is widely used in various fields, one of which is reinsurance. An outbreak catastrophe is non-natural disaster that can pose an extreme risk of economic loss to a country that is exposed to it. To anticipate this risk, the government of a country can insure it to a reinsurance company which is then linkedto bonds in the capital market so that new securities are issued, namely outbreakcatastrophe bonds. In pricing, knowledge of the extreme distribution of economic losses due to outbreak catastrophe is indispensable. Therefore, this study aims to determine the extreme distribution model of economic losses due to outbreak catastrophe whose models will be determined by the approaches and methods of Extreme Value Theory and Peaks Over Threshold, respectively. The threshold value parameter of the model will be estimated by Kurtosis Method, while the other parameters will be estimated with Maximum Likelihood Estimation Method based on Newton-Raphson Iteration. The result of the research obtained is the resulting model of extreme value distribution of economic losses due to outbreak catastrophe that can be used by reinsurance companies as a tool in determining the value of risk in the outbreak catastrophe bonds.

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Multiple-Event Catastrophe Bond Pricing Based on CIR-Copula-POT Model

Cited by 19 publications

References 13 publications

Applying multivariate-fractionally integrated volatility analysis on emerging market bond portfolios

Applying multivariate-fractionally integrated volatility analysis on emerging market bond portfolios

Pricing Multi-event Triggered Catastrophe Bonds Based on Copula-POT Model

Estimation of the Extreme Distribution Model of Economic Losses Due to Outbreaks Using the POT Method with Newton Raphson Iteration

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